Quick Facts

Mozambique’s economic freedom score is 54.8, making its economy the 125th freest in the 2015 Index. Its overall score has declined by 0.2 point since last year, with improvements in freedom from corruption, government spending, labor freedom, and monetary freedom outweighed by sizeable declines in business freedom and investment freedom. Mozambique is ranked 24th out of 46 countries in the Sub-Saharan Africa region, and its overall score is just below the regional average.

Relative peace after years of civil war and the discovery of promising natural gas reserves have propelled Mozambique’s economic growth in recent years, but improvements in economic freedom have not followed. Over the past five years, economic freedom in Mozambique has declined by 2.0 points, with losses in a majority of the 10 factors. Particularly worrying is a large score decline in the management of government spending. Continued fiscal intransigence could undermine the productive use of commodity windfalls.

This downward trend undermines an already weak economic foundation. The judiciary remains ineffective and vulnerable to political influence, and corruption remains pervasive in the public sector. Much of the population is stuck in subsistence agriculture due to burdensome business regulations that inhibit entrepreneurship, and the rigid labor market exacerbates unemployment and underemployment.

Background

The Frelimo party, currently headed by President Armando Guebuza, has been in power since independence from Portugal in 1975. Following independence, there was a 16-year civil war between Frelimo and the rebel movement Renamo that ended with the Rome Peace Accords in 1992. In October 2013, after several clashes with Frelimo, Renamo announced that it was pulling out of the peace accord. Both parties reached a peace deal in September 2014 ahead of the country’s national elections in October. Despite political instability, Mozambique has emerged as one of the world’s fastest-growing economies and is expected to become one of the world’s largest exporters of coal and gas.

Corruption remains pervasive in government and business despite the passing of a new anti-corruption law and the delegation of new powers to the Central Office for Combating Corruption in 2012. The police and judicial bodies in charge of enforcing anti-corruption measures are themselves often corrupt. Property rights are not strongly respected, and law enforcement is inefficient and uneven.

The top individual and corporate income tax rates are 32 percent. Other taxes include a value-added tax and an inheritance tax. The overall tax burden equals 20.8 percent of the domestic economy. Government expenditures are equal to 33.4 percent of gross domestic product, and public debt is equivalent to 43 percent of annual domestic output.

With no minimum capital required, forming a business takes nine procedures and 13 days on average, but completing licensing requirements still takes over 140 days on average. The public and energy sectors employ much of the formal labor force. The labor market lacks flexibility. The government maintains administered prices for fuels and subsidizes state-owned enterprises such as the electricity company.

Mozambique’s average tariff rate is 4.8 percent. Customs delays may interfere with trade. Land is state-owned, and the government screens new foreign investment. The financial system remains underdeveloped. About 10 percent of Mozambicans have access to formal financial services, and less than 5 percent have access to credit. The three largest banks, all foreign-owned, dominate the system.